RBI forms committee to monitor shadow banking; realty in focus

With a large number of financial scams coming up in recent years, the Reserve Bank of India (RBI) has decided to take the growing phenomenon of shadow banking head on.

After a meeting in Mumbai last Tuesday, the central bank has set up a 15-membered committee comprising officials of the RBI, Securities and Exchange Board of India (Sebi), Central Economic Intelligence Bureau and the National Housing Bank.

Confirming the development, RBI spokesperson Alpana Killawalla told HT: "An inter-regulatory group has been set up to monitor developments in the area of shadow banking under the chairmanship of RBI executive director P Vijaya Bhaskar."

Shadow banking refers to banking-like activity by non-banking finance companies (NBFCs) that remain outside the regulatory net. They generally operate as intermediaries between investors and borrowers.

"The committee’s role will be to find out the volume of money in shadow banks, who the investors are and direction of the money flow, etc. Also real estate dealings will be looked into very meticulously," a top official familiar with the development said.

Kolkata-based Saradha Group went bust this April after its flagship company Saradha Realty allegedly collected crores of rupees from over 10,00,000 small investors in West Bengal, Assam and Orissa and did not return the maturity value to investors nor paid salaries to its staff and instead closed down offices.

Parliament recently approved the Securities Laws (Amendment) Bill 2014, empowering Sebi with the authority to crack down on Ponzi schemes.